Liquidator finds new way to get extension of time to bring unfair preference claim

14 Apr 2016

Liquidator finds new way to get extension of time to bring unfair preference claim

by Peter Bowden, Nick Poole

Although they should always keep time-frames very much in mind, the decision in BKA Practice Co Pty Ltd gives liquidators greater scope to find all possible time-frames in which they have to work.

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Although liquidators generally are very careful to avoid error and observe any relevant time limits, mistakes can happen in the fog of war. One liquidator in that situation found a novel way to save the day by using the Supreme Court's procedural rules, outside the period allowed in the Corporations Act 2001 (Cth), to extend the time within which voidable transaction proceedings can be brought under section 588FF of the Act (BKA Practice Co Pty Ltd v Viking Group Holdings Pty Ltd [2015] VSC 699).

The Viking liquidation runs aground

The case involved an application by the liquidator of Viking Group Holdings Pty Ltd (In Liquidation) for an extension of time within which to bring voidable transaction proceedings.

Generally, a voidable transaction proceeding must be brought within three years of the relation-back day. However, the Court has the power (under section 588F(3)(b) of the Act), to extend that time period provided the liquidator's application for an extension is brought within the three year period.

In this case, the liquidator instructed its solicitors to prepare and commence proceedings against Belleli King & Associates to recover moneys as an "unfair preference" under section 588FE of the Act. The liquidator's solicitors had acted promptly to identify the defendant, prepare the originating process and supporting affidavit material and ensure that the proceedings were commenced before the expiry of the limitation period.

However, a mistake was made and the wrong defendant was named in the proceedings. The defendant was identified as the entity "trading as Belleli King & Associates". While this was partly correct, the named entity in the documentation was a company (BKA Practice Co Pty Ltd) and not the partnership (Jerry Belleli and Brendan King) that was the correct entity in the circumstances (ie. it was the partnership "trading as Belleli King & Associates" that was the creditor of Viking Group at the time of the identified transactions).

The mistake was discovered after the limitation period had expired.

Mistakes and the Victorian Supreme Court Rules

Rule 36.01 of the Supreme Court (General Civil Procedure) Rules 2005 is a procedural rule which empowers the Victorian Supreme Court to replace one party to litigation with another. It covers not just cases of misnomer, clerical error and misdescription, but also cases where the plaintiff, intending to sue a person he or she identifies by a particular description, was mistaken as to the name of the person who answers that description.

The issue before the Supreme Court was whether Rule 36.01 could be used to effectively extend the period within which an application for relief under section 588FF(1) could be made despite the period for making an application for extension under section 588FF(3) having expired.

The court decisions

At first instance, Associate Justice Efthim ordered the name of the defendant to the proceeding to be amended to substitute the partners trading as Belleli King & Associates for the company. He concluded on the facts that the liquidator "intended to sue the solicitors that provided the services and received payment" and that "the correct name was not used because of a mistake." In these circumstances, Associate Justice Efthim considered that the application fell to be determined by reference to Rule 36.01, under which a court can substitute the correct description of a legal entity where there was no doubt about what entity was intended to be sued.

On appeal, the appellants argued that while Associate Justice Efthim construed Rule 36.01correctly, he "fundamentally misconstrued the source and scope of the Court's power on hearing of the application." They said that the issue was whether the amendment was allowable if its effect was to commence a fresh proceeding against a newly added defendant outside the prescribed timeframe provided for under section 588FF(3)(b) of the Corporations Act.

Section 79(1) of the Judiciary Act 1903 (Cth) provides that the laws of each State or Territory, including the laws relating to procedure, shall, "except as otherwise provided by the Constitution or laws of the Commonwealth", apply to all courts exercising federal jurisdiction in that State or Territory. Once an application for an extension of time is made under section 588FF(3)(b) of the Corporations Act, the conduct of the litigation is left for the operation of the procedures of that court.

In dismissing the appeal, Justice Hargraves found that section 588FF does not deal with mistakes in the name of parties to applications made under that provision. In his view, there is no provision in the Act which does. Accordingly, section 588FF(1) does not "otherwise provide" within the meaning of section 79 of the Judiciary Act, and Rule 36.01 applies to any applications made. As it was agreed by the appellants that Associate Justice Efthim's exercise of discretion on that basis was correct, the appeal was dismissed with costs.

Lessons for liquidators

Although they should always keep time-frames very much in mind, the decision in BKA Practice Co Pty Ltd gives liquidators greater scope to find all possible time-frames in which they have to work. The flexibility shown by the Court in this case, however, was very much a discretionary one, so it doesn't give them carte blanche to be casual about time-frames. Nonetheless, for liquidators making an honest mistake, it shows that there is a way to reverse it.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.